The UK government has been forced to take a multibillion-pound nuclear cleanup contract back into public ownership, after a botched tender to the private sector landed the taxpayer with a £122m bill.

The government will take over the decommissioning of Britain’s 12 Magnox sites, including the former nuclear power stations at Dungeness in Kent and Hinkley Point in Somerset.

The move is a response to the fallout from the Nuclear Decommissioning Authority (NDA) awarding a 14-year deal to the international consortium Cavendish Fluor Partnership in 2014.

Last year the government settled with two US companies that lost out on the £6.2bn contract and brought a legal challenge over the tender process.

Ministers terminated the contract early, leading to speculation over whether it would be put out to tender again to the private sector or brought back into public hands.

David Peattie, the NDA’s chief executive, told staff he understood they had faced uncertainty in recent months, as he confirmed that the private company Magnox Ltd would become a subsidiary of the NDA on 1 September. He said the change would result in “more efficient decommissioning”.

A source close to the process said: “The reason that this has been done is to remove some of the commercial complications and the large fees paid to contractors. This will ensure more money is spent directly on cleaning up these sites.”

Unions said they wanted talks with the new management regime for assurances over pay and terms.

Peter McIntosh, the Unite union’s acting national officer for energy, said: “This decision is long overdue. The 2014 contract should not have been awarded to any organisation.”

He added: “We need to ensure the taxpayer gets value for money through the transfer of the business and it is not paid for at the expense of the workforce.”

Whitehall’s spending watchdog, the Public Accounts Committee (PAC), has strongly criticised the NDA and the Department for Business, Energy and Industrial Strategy over the handling and oversight of the nuclear cleanup contract, one of the government’s biggest ever.

A review of the failings that led to the bungled process, written by the former National Grid boss Steve Holliday, is due to be published later this year.

Bringing the Magnox work back into the public sector means that about 85% of Britain’s nuclear cleanup work is in public hands, after the NDA’s takeover of the Sellafield storage and reprocessing site in 2016.